CORONAVIRUS EMERGENCY ECONOMIC RELIEF

M E M O : CORONAVIRUS EMERGENCY ECONOMIC RELIEF

President Trump signed a $2.2 trillion economic relief plan to aid millions of American households affected by the coronavirus pandemic. The “Coronavirus Aid, Relief, and Economic Security Act,” (CARES Act) contains tax and nontax relief measures that are designed to avert a U.S. economic collapse.

We are still unpacking all the details of the CARES Act and how it assists all Americans.

The CARES Act’s Paycheck Protection Program Loan Guarantee offers another source of help. Under this program, the SBA backs small-business loans through local lenders. According to William Briggs, Deputy Associate Administrator in the Office of Capital Access in the SBA, they currently work with 1800 lenders and plan to expand that given the anticipated demand.

Here are the particulars of this loan program:

Offered to small businesses with fewer than 500 employees, select types of business with fewer than 1,500 employees, 501(c)(3) non-profits with fewer than 500 workers and some 501(C)(19) veteran organization (have to be in operation before February 15, 2020)

Self-employed, sole proprietors, freelance and gig economy workers are also eligible to apply (again, you must be in operation before February 15, 2020).

Loans are given up to a maximum of the lesser of $10 million, or 2.5 times the average monthly payroll costs – including wages for employees making under $100,000, as well as expenses for paid sick leave, healthcare and other benefits – during the 1-year period before the date on which the loan was made.

The maximum interest rate under this program is 4%

The loan term is up to 10 years

No personal guarantee or collateral is required for the loan

Payments are deferred up to six to 12 months

Part of this loan may be forgiven and not counted as income to you, if it’s spent during the first eight weeks on operating expenses.

As with the $10,000 advance in EDILs, loan forgiveness provisions are generous. Loans are forgiven when the proceeds are used for any of these costs:

Electricity, gas, water, transportation, telephone, or internet access expenses for services which began before February 15, 2020

Group health insurance premiums and other healthcare costs.

Please note in order for the amounts to be forgiven, you must maintain the same average number of employees for the first eight-week period beginning on the origination date of the loan as you did from February 15, 2019 – June 30, 2019 or from January 1, 2020 until February 15, 2020. If you don’t meet this requirement, the amount forgiven is reduced. You incur additional reductions if you cut compensation for employees who make under $100,000 by more than 25%, as compared to the most recent quarter. And of course there’s an exception to the exception: you won’t be penalized for a reduction in employment or wages during the period from February 15, 2020 to April 26, 2020, if you rehire employees that you previously laid off or restore any decreases in wages or salaries by June 30, 2020. You may apply for the Paycheck Protection Loan directly through your local lending institution. As a business owner, you must personally certify that your company qualifies as a small business cited from Thompson, Brian, Getting Cash for your Small Business Through The CARES Act (Forbes.com).

Direct Cash Rebates to Individuals

A headline feature of the CARES Act is a one-time $1,200 cash payment for eligible individuals ($2,400 for married couples), with additional cash payments of $500 per qualifying child. Payments for these “recovery rebates” will commence in a few weeks. An individual is eligible for the full amount of the cash payment to the extent adjusted gross income (AGI) does not exceed $75,000 ($150,000 for married couples filing joint returns, and $112,500 for head of household filers). The amount of the cash payment begins to phase out as AGI exceeds these levels. The following chart depicts the amount of cash payments that individuals will receive (assuming there are no qualifying children), given varying levels of AGI.

$2,400 (Married)

$1,200 (Single)

The cash payment is phased out by $5 for each $100 that the taxpayer’s AGI exceeds the applicable threshold. Thus, if a married couple has 3 qualifying children, their total potential cash payment of $3,900 is phased out once their AGI exceeds $228,000. No action is required on the part of the majority of Americans in order to receive a rebate check. The IRS will use a taxpayer’s 2019 tax return if filed, or in the alternative their 2018 return.

Expansion of Unemployment Benefits

Though the one-time recovery rebates are the headline provision, perhaps a more important provision under the CARES Act is a massive expansion to unemployment benefits. Unemployed workers will be eligible for federal unemployment benefits of $600 per week for four months. This amount is in addition to any state unemployment benefits. Additionally, the benefit is extended to independent contractors, self-employed individuals, individuals with a limited work history, and furloughed workers. Further, federal unemployment benefits will provide an additional 13 weeks of pay once a worker’s duration of state unemployment benefits expires. The CARES Act also will fund 100% of the unemployment benefits for states that do not impose a 7-day waiting period.

To reduce the number of unemployed workers, the CARES Act will provide a new short-term compensation benefit. For private sector employers that reduce hours for employees in order to avert layoffs, funding will be provided for the difference between the reduced employer compensation and the unemployment compensation benefit. Employees who receive wages under such a program will be eligible for pro-rated unemployment benefits.

Employer Payroll Tax Holiday

The CARES Act will provide a payroll tax holiday that allows employers to defer the employer portion of their federal payroll tax liability (or 50% of the self-employment tax for the self-employed) through December 31, 2020. Businesses taking advantage of this holiday would repay 50% of the amount deferred in 2021 and the remaining 50% in 2022. The payroll tax holiday could lead to $349 billion of deferred payroll taxes, though the final amount may be less given the anticipated rise in unemployment.

Other Nontax Measures

The CARES Act will provide additional funding for states, hospitals, and other programs. For hospitals this includes $100 billion to treat coronavirus patients, $1 billion for the Indian Health Service, and $49 billion for medical equipment. States will receive $142 billion to deal with the impacts of the virus. And tribal governments will receive $8 billion.

Retail Glitch Fix

Aside from the large amount of spending, loans, and grants outlined above, there are specific changes to the tax code designed to stimulate growth. The first is the highly anticipated fix for the “retail glitch.” The “retail glitch” resulted from a drafting error in the tax law commonly known as the Tax Cuts and Jobs Act (TCJA). The law mistakenly repealed the 15-year depreciable class life for qualified improvement, retail and restaurant property, eliminating the ability to claim bonus depreciation on such property. The CARES Act makes a technical correction to the TCJA to re-establish the 15-year depreciable class life for these assets, effective for property placed in service after September 27, 2017.

Tax Changes for Charitable Contributions

There are also changes designed to increase the deductibility of charitable contributions. This includes a new $300 above-the-line deduction for cash contributions to a qualifying charity. This provision allows a charitable deduction to those who don’t itemize. The deduction limit for contributions of food inventory is increased from 15% to 25% of AGI. Corporations also receive an increased contribution limit for cash contributions from 10% to 25% of taxable income. The new above the line deduction may reverse some of the decline in charitable contributions that was at least in part attributable to the TCJA’s changes to the itemized and standard deduction. Charitable giving fell by an inflation adjusted 3.4% from the year prior to the passage of the TCJA to the year after, and 2% fewer individuals made charitable contributions after the passage of the act.

Employee Retention Credit

There is also a new employee retention credit that comes in the form of a payroll tax credit for 50% of wages paid by an affected employer. An affected employer is one whose operations were fully or partially suspended due to a COVID-19-related shutdown order, or whose gross receipts declined by more than 50 percent when compared to the same quarter in the prior year. This credit is based upon qualifying wages paid by an affected employer and is also dependent on the size of the employer. For small employers (100 of fewer full-time employees) the credit is based upon 100% of wages paid whether the employer is open or has been closed due to a coronavirus shutdown order. For large employers the credit is based upon the first $10,000 of compensation, including healthcare benefits, paid to employees who are not providing services due to a coronavirus shutdown order. The credit covers the period from March 13, 2020 through December 31, 2020.

Tax Loss Limitation and NOL Carryback Changes

The TCJA also essentially eliminated the ability of businesses to carryback NOLs to prior years. Prior to the TCJA there was a 2 year carryback period; the TCJA generally repealed the ability to carry back NOLs and further reduced the ability to deduct current NOLs to 80% of taxable income. The CARES Act reverses the TCJA change and expands the scope of NOL carrybacks. Under the CARES Act, businesses may carryback NOLs incurred in 2018-2020 for 5 years, and may fully offset income in the carryback years. Also as a part of the changes to the provisions regarding losses, the excess business loss limitation has been modified. The CARES Act will suspend the excess business loss limitation until 2021.

Other Tax Law Changes

The limitation on business interest will also be modified under the CARES Act. For 2019 and 2020, the 30% limit used to determine the amount of deductible business interest will be increased to 50%. Corporations will also see an additional benefit because the rules for refunds of corporate AMT credits have been modified. Instead of receiving these refundable credits over a number of years, ending in 2021, corporations may now receive the entire refundable credit in 2019. Additionally, there is a temporary holiday for aviation fuel excise taxes and a temporary exemption from the excise tax on alcohol for all distilled spirits contained or used in hand sanitizer. This will likely help local alcohol brewers across the country, many of whom have switched to production of hand sanitizer as a response to reduced demand for alcoholic beverages and an increased demand for hand sanitizer.

Retirement Account Withdrawals

The IRS is waiving the 10-percent early withdrawal penalty for distributions up to $100,000 from qualified retirement accounts for coronavirus-related purposes made on or after Jan. 1, 2020. In addition, income attributable to such distributions would be subject to tax over three years, and taxpayers can recontribute the funds to an eligible retirement plan within three years without regard to that year’s cap on contributions. The provision provides flexibility for loans from certain retirement plans for coronavirus-related relief. The coronavirus-related distribution is made to an individual: (1) who is diagnosed with COVID-19; (2) whose spouse or dependent is diagnosed with COVID-19; or (3) who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, having work hours reduced, being unable to work due to lack of child care due to COVID-19, closing or reducing hours of a business owned or operated by the individual due to COVID-19, or other factors as determined by the Treasury Secretary.

There is also a temporary waiver of required minimum distribution rules for certain retirement plans and accounts such as IRAs to help individuals who would otherwise be required to withdraw funds from retirement accounts during the economic slowdown due to COVID-19. This provision waives the required minimum distribution rules for certain defined contribution plans and IRAs for calendar year 2020.

Frequently Asked Questions:

STIMULUS PAYMENTS

How large will the payments be?

Most adults will get $1,200, although some would get less. For every qualifying child age 16 or under, the payment will be an additional $500.

How many payments will there be?

Just one. Future bills could order up additional payments, though.

How do I know if I will get the full amount?

It depends on your income. Single adults with Social Security numbers who have an adjusted gross income of $75,000 or less will get the full amount. Married couples with no children earning $150,000 or less will receive a total of $2,400. And taxpayers filing as head of household would get the full payment if they earned $112,500 or less. Above those income figures, the payment decreases until it stops altogether for single people earning $99,000 or married people who have no children and earn $198,000. According to the Senate Finance Committee, a family with two children will no longer be eligible for any payments if its income surpassed $218,000. You can’t get a payment if someone claims you as a dependent, even if you’re an adult. In any given family and in most instances, everyone must have a valid Social Security number in order to be eligible. There is an exception for members of the military. You can find your adjusted gross income on Line 8b of the 2019 1040 federal tax return.

Do college students get anything?

Not if anyone claims them as a dependent on a tax return. Usually, students under age 24 are dependents in the eyes of the taxing authorities if a parent pays for at least half of their expenses.

What year’s income should I be looking at?

If you haven’t prepared a tax return yet, you can use your 2018 return. If you haven’t filed that yet, you can use a 2019 Social Security statement showing your income to see what an employer reported to the IRS.

What if my recent income made me ineligible, but I anticipate being eligible because of a loss of income in 2020? Do I get a payment?

The plan does not help people in that circumstance now, but you may benefit once you file your 2020 taxes. That’s because the payment is technically an advance on a tax credit that is available for the entire year, so it will depend on how much you earn. There are many other provisions in the legislation. You may be able to file for unemployment or for one of the new loans for small business owners or sole proprietors.

Will I have to apply to receive a payment?

No. If the Internal Revenue Service already has your bank account information, it will transfer the money to you via direct deposit based on the recent income-tax figures it already has.

When will the payment arrive?

Most people to get their payments sometime in April 2020

If my payment doesn’t come soon, how can I be sure that it wasn’t misdirected?

According to the bill, you will get a paper notice in the mail no later than a few weeks after your payment has been disbursed. That notice will contain information about where the payment ended up and in what form it was made. If you couldn’t locate the payment at that point, it would be time to contact the I.R.S. using the information on the notice.

What if I haven’t filed tax returns recently? Will that affect my ability to receive a payment?

It could. File a return immediately, at least for 2018, according to the I.R.S. website. “Those without 2018 tax filings on record could potentially affect mailings of stimulus checks,” the site says.

Will most people who are receiving Social Security retirement and disability payments each month also get a stimulus payment?

Yes.

Will eligible unemployed people get these stimulus payments?

Yes.

Will eligible Veterans get these stimulus payments?

Yes.

Will U.S. citizens living abroad get a payment?

Yes, if they meet the income requirements and have a Social Security number.

Do I have to pay income taxes on the amount of my payment?

No.

If my income tax refunds are currently being garnished because of a student loan default, will this payment be garnished as well?

No. In fact, the bill temporarily suspends nearly all efforts to garnish tax refunds to repay debts, including those to the I.R.S. itself. But this waiver may not apply to people who are behind on child support.

UNEMPLOYMENT BENEFITS

Who will be covered by the expanded program?

The plan wraps in far more workers than are usually eligible for unemployment benefits, including self-employed people and part-time workers.

The bottom line: Those who are unemployed, are partly unemployed or cannot work for a wide variety of coronavirus-related reasons will be more likely to receive benefits.

How much will I receive?

It depends on your state. Benefits will be expanded to attempt to replace the average worker’s paycheck. The average worker earns about $1,000 a week, and unemployment benefits often replace roughly 40 to 45 percent of that. The expansion will pay an extra amount to fill the gap. Under the plan, eligible workers will get an extra $600 per week on top of their state benefit. For example, a worker making $1,100 per week in New York; would be eligible for the maximum state unemployment benefit of $504 per week. Under the new expansion, she gets an additional $600 of federal pandemic unemployment compensation, for a total of $1,104, essentially replacing her original paycheck.

States have the option of providing the entire amount in one payment or sending the extra portion separately. But it must all be done on the same weekly basis.

Are gig workers, freelancers and independent contractors covered?

Yes, self-employed people are newly eligible for unemployment benefits.

Benefit amounts will be calculated based on previous income, using a formula from the Disaster Unemployment Assistance program, according to a congressional aide. Self-employed workers will also be eligible for the additional $600 weekly benefit provided by the federal government.

What if I’m a part-time worker who lost my job because of a coronavirus reason, but my state doesn’t cover part-time workers? Am I still eligible?

Yes. Part-time workers are eligible for benefits, but the benefit amount and how long benefits will last depend on your state. They are also eligible for the additional $600 weekly benefit.

What if I have Covid-19 or need to care for a family member who has it?

If you’ve received a diagnosis, are experiencing symptoms or are seeking a diagnosis — and you’re unemployed, partly unemployed or cannot work as a result — you will be covered. The same goes if you must care for a member of your family or household who has received a diagnosis.

What if my child’s school or day care shut down?

If you rely on a school, a day care or another facility to care for a child, elderly parent or another household member so that you can work — and that facility has been shut down because of coronavirus — you are eligible.

What if I’ve been advised by a health care provider to quarantine myself because of exposure to coronavirus? And what about broader orders to stay home?

People who must self-quarantine are covered. The legislation also says that individuals who are unable to get to work because of a quarantine imposed as a result of the outbreak are eligible.

I was about to start a new job and now can’t get there because of an outbreak.

You’re eligible for benefits. You will also be covered if you were immediately laid off from a new job and did not have enough work history to qualify for benefits under normal circumstances.

I had to quit my job as a direct result of coronavirus. Would I be eligible to apply for benefits?

It depends. Let’s say your employer didn’t lay you off but you had to quit because of a quarantine recommended by a health care provider, or because your child’s day care closed and you’re the primary caregiver. Situations like that are covered.

But this provision wasn’t intended to cover people who quit (or want to quit) because they fear that continuing to work puts them at risk of contracting coronavirus, according to congressional aides.

My employer shut down my workplace because of coronavirus. Am I eligible?

Yes. If you are unemployed, partly unemployed or unable to work because your employer closed down, you’re covered under the bill.

The breadwinner of my household has died as a result of coronavirus. I relied on that person for income, and I’m not working. Is that covered?

Yes.

Whom does the bill leave out?

Workers who can work from home, and those receiving paid sick leave or paid family leave are not covered. New entrants to the work force who cannot find jobs are also ineligible.

How long will the payments last?

Many states already provide 26 weeks of benefits, though some states have trimmed that back while others provide a sliding scale tied to unemployment levels. The bill provides all eligible workers with an additional 13 weeks. Participants in states with 26 weeks would be eligible for a total of 39 weeks. The total amount cannot exceed 39 weeks, but it may be shorter in certain states. The extra $600 payment will last for up to four months, covering weeks of unemployment ending July 31.

How long would the broader program last?

Expanded coverage would be available to workers who were newly eligible for unemployment benefits for weeks starting on Jan. 27, 2020, and through Dec. 31, 2020.

I’m already receiving unemployment benefits. Will I receive any help?

Yes. Even if you’re already receiving unemployment benefits for reasons unrelated to the coronavirus, your state-level benefits will still be extended by 13 weeks. You will also receive the extra $600 weekly benefit from the federal government.

My unemployment recently ran out — could I sign up again?

Yes. If you’ve exhausted your benefits, eligible workers can generally reapply. But how much you get and for how long depends on the state where you worked. Everyone gets at least another 13 weeks, along with the extra $600 payment.

Will this income disqualify me from any other programs?

Maybe. The additional $600 benefit counts as income when determining eligibility for means-tested programs, except for Medicaid and the Children’s Health Insurance Program, known as CHIP.

How long will I need to wait for benefits?

States have been incentivized to waive the one-week waiting period, but it’s unclear how long it will take to process claims — especially with state offices so strained by a flood of them.

STUDENT LOANS

The federal government has already waived two months of payments and interest for many federal student loan borrowers. Is there a bigger break now with the new bill?

Yes. Until Sept. 30, there will be automatic payment suspensions for any student loan held by the federal government. It is hard to contact many of the loan servicers right now, so check your account online in the coming weeks. Once you are logged in, look for the current amount due. There, you should be able to see if the servicer has reset its billing systems so that you are showing no payment due.

How do I know if my loan is eligible?

If you’ve borrowed money from the federal government — a so-called direct loan — in the past 10 years, you’re eligible. According to the Institute for College Access & Success, 90 percent of loans (in dollar terms) will be eligible. Older Federal Family Educational Loans (F.F.E.L.) that the U.S. Department of Education does not own are not eligible, nor are Perkins loans, loans from state agencies, or loans from private lenders like Discover, Sallie Mae and Wells Fargo. The holders of all those kinds of loans may be offering their own assistance programs.

Within a few weeks, you are supposed to receive notice indicating what has happened with your federal loans. You can choose to keep paying down your principal if you want. Then, after Aug. 1, you should get multiple notices letting you know about the cessation of the suspension period and that you may be eligible to enroll in an income-driven repayment plan.

Will my loan servicer charge me interest during the six-month period?

The bill says that interest “shall not accrue” on the loan during the suspension period.

At the end of the suspension, keep a close eye on what your loan servicer does (or does not do) to put you back into your previous repayment mode. Servicer errors are common.

Will the six-month suspension cost me money, since I’m trying to qualify for the public service loan forgiveness program by making 120 monthly payments?

No. The legislation says that your payment count will still go up by one payment each month during the six-month suspension, even though you will not actually be making any payments. This is true for all forgiveness or loan-rehabilitation programs.

Is wage garnishment that resulted from being behind on my loan payments suspended during this six-month period?

Yes. So is the seizure of tax refunds, the reduction of any other federal benefit payments and other involuntary collection efforts.

Are there changes to the rules if my employer repays some of my student loans?

Yes. Some employers do this as an employee benefit. Between the date the bill is signed and the end of 2020, they can offer up to $5,250 of assistance without that money counting as part of the employee’s income. If the employer pays tuition for classes an employee is taking, that money will also count toward the $5,250.

RETIREMENT ACCOUNTS

Which retirement account rules are suspended?

For the calendar year 2020, no one will have to take a required minimum distribution from any individual retirement accounts or workplace retirement savings plans, like a 401(k). That way, you aren’t forced to sell investments that may have fallen in value, which would lock in losses. If you don’t need the money now, you can let the investments sit and hope that they recover. This change would not affect old-fashioned pensions.

What if I have to take money out of my I.R.A. or workplace retirement plan early?

You can withdraw up to $100,000 this year without the usual 10 percent penalty, as long as it’s because of the outbreak. You will also be able to spread out any income taxes that you owe over three years from the date you took the distribution. And if you want, you could put the money back into the account before those three years are up, even though the rules may normally keep you from making a contribution that large. This exception applies only to coronavirus-related withdrawals. You qualify if you tested positive, a spouse or dependent did or you experienced a variety of other negative economic consequences related to the pandemic. Employers can allow workers to self-certify that they are qualified to pull money from a workplace retirement account.

Can I still borrow from my 401(k) or another workplace retirement plan?

Yes, and you can take out twice the usual amount. For 180 days after the bill passes, with certification that you’ve been affected by the pandemic, you’ll be able to take out a loan of up to $100,000. Usually you can’t take out more than half your balance, but that rule is suspended. If you already have a loan and were supposed to finish repaying it before Dec. 31, you get an extra year.

CHARITABLE CONTRIBUTIONS

I want to help people who are suffering from the pandemic. Does the bill do anything about charitable donations?

Yes. The bill makes a new deduction available — and not just for 2020 — for up to $300 in annual charitable contributions. It’s available only to people who don’t itemize their deductions, and you calculate this new one by subtracting the amount you give from your gross income.

To qualify, you must give cash to a qualified charity and not to a donor-advised fund, which is a charitable account that affluent people often use to bunch contributions in a particular year in order to maximize deductions. If you’ve already given money since Jan. 1, that contribution counts toward the $300 cap.

If I want to give more to charity than I usually do. Have the limits on charitable deductions changed?

Yes, they have. As part of the bill, donors can deduct 100 percent of their gift against their 2020 adjusted gross income. If you have $1 million of income, you can give $1 million to a public charity and deduct the full amount in 2020. The new deduction is only for cash gifts that go to a public charity. If you give cash to, say, your private foundation, the old deduction rules apply. And while the organizations that manage donor-advised funds are public charities, you do not get the higher deduction for donating cash to your donor-advised fund. If your assets are substantial enough that you can give more than your income this year, you won’t lose the deduction for the excess amount. You can use it next year, as has always been the case.

OTHER FEATURES OF THE BILL

Will there be damage to my credit report if I take advantage of any virus-related payment relief, including the student loan suspension?

We do not expect that there should be. The bill states that during the period beginning on Jan. 31 and continuing 120 days after the end of the national emergency declaration, lenders and others should mark your credit file as current, even if you take advantage of payment modifications. If you had black marks in your file before the virus hit, those will remain unless you fix the issues during the emergency period. Credit reporting agencies can make errors. Be sure to check your credit report a few times each year, especially if you accept any help from any financial institution or biller this year.

Is there any relief for renters in the bill?

Yes. The bill puts a temporary, nationwide eviction moratorium in place for any renters whose landlords have mortgages backed or owned by Fannie Mae, Freddie Mac and other federal entities. This will last for 120 days after the bill passes, and landlords also can’t charge any fees or penalties for nonpayment of rent.

Does this bill change any rules for health savings accounts and health care flexible spending accounts?

Yes. After at least 15 years of lobbying and debate, menstrual products are now eligible for reimbursement.

Did the legislation make it illegal for any internet provider to cut off service to an individual or small business that can’t pay its bills?

No.

Did the legislation make it illegal for utility providers to cut off service?